The Oslo division and the Bergen division are divisions within the Baltic Group. One of the products manufactured by the Oslo division is an intermediate product for which there is no external market. This intermediate
product is transferred to the Bergen division where it is converted into a final
product for sale on the external market. One unit of the intermediate product is used
in the production of the final product. The expected units of the final product which
the Bergen division estimates it can sell at various selling prices are as follows:
|
Net selling price |
Quantity sold |
|
(£) |
Units |
|
100 |
1000 |
|
90 |
2000 |
|
80 |
3000 |
|
70 |
4000 |
|
60 |
5000 |
|
50 |
6000 |
The costs of each division are as follows:
|
Oslo |
Bergen |
|
|
(£) |
(£) |
(£) |
|
Variable cost per unit |
11 |
7 |
|
Fixed costs attributable to the products |
60000 |
90000 |
You are required to write a report for Mr Ragwort about the proposed methods of measuring divisional performance, to comply with the terms of his instruction